Structured Finance House and Americas Structured Finance House: Credit Suisse

IFR Review of the Year 2013
9 min read
Anil Mayre, Owen Sanderson

Breaking new ground

In its second full year following a major reorganisation, Credit Suisse achieved a stellar 2013, proving itself to be one of the most savvy and sophisticated structurers. For combining crucial roles in landmark US transactions, and important roles in Europe, Credit Suisse is IFR’s Structured Finance House and Americas Structured Finance House of the Year.

In 2013 Credit Suisse boasted groundbreaking inaugural structuring mandates and dominated the most challenging and innovative deals. The bank created two brand new asset classes in the US that will have deep repercussions for their respective industries: GSE risk-sharing MBS (Freddie Mac’s first STACR deal) and solar ABS (SolarCity). The importance of these two milestones cannot be overstated. It also resurrected European CLOs, one of the come-back stories of the year.

In ABS, the bank continued to build on the residual-sale market it developed in 2011 (via a nuanced auto deal for Huntington Bancshares), and now holds 100% market share for structuring balance-sheet management advisory and regulatory capital transactions for regional banks such as Fifth Third Bank (first issuance since 2008), California Republic Bank (repeat sole bookrunner assignment), M&T Bank (inaugural deal) and issuers such as Hyundai (first residual structured for a new-issue captive).

“They have been the best securitisation bankers I have ever worked with,” said Lee Whatcott, the director of capital markets at California Republic Bank, who has been in the securitisation business since the 1980s.

With Credit Suisse’s guidance and expertise, the bank, a newcomer to the auto-finance industry, achieved regulatory capital relief through its first-ever off-balance-sheet auto ABS. Its first deal surfaced in late 2012, followed by two more in June and November 2013.

The latter transaction garnered a Triple A rating from DBRS – quite a feat for an issuer less than three years into its auto finance programme.

“Credit Suisse helped us to achieve a Triple A rating earlier than any other new auto issuer, I believe,” Whatcott said.

Such a desire to solve client problems lies at the heart of what the bank tried to achieve in 2013. The plan is to “solve client problems, leveraging securitisation technology”, said group head Jay Kim.

Building a new platform

The Credit Suisse team fought hard since 2011 for its current reputation as a bank that takes on the most difficult deals. Kim defected from Barclays in March of that year – where he was co-head in charge of consumer ABS – and brought along at least 10 senior bankers, including Mike Dryden, an RMBS expert experienced in government advisory.

Dryden’s pairing up with the bank’s long-time RMBS guru Peter Sack made Credit Suisse an unstoppable force in resi mortgages, allowing it to complete STACR, participate in all servicer-advance ABS deals issued in 2013, and achieve number one status on all mortgage sector deals, including re-performing, non-performing, new-origination jumbo prime, and re-securitisations.

And despite extending significantly less credit relative to its peer group, Credit Suisse is the structuring agent of choice in ABS, having structured a market-leading 27 deals and serving as bookrunner on the most ABS transactions in 2013.

Kim’s team revitalised Credit Suisse’s stature in securitisation, steadily ascending league tables over the past two years. Excluding self-funded deals and CLOs, Credit Suisse had climbed to a top-four position as of mid-November.

Even the successful first ever single family rental bond from Blackstone’s Invitation Homes division – on which Credit Suisse was co-lead – used the bank’s innovative master trust structure template used in the STORE Capital 2013-1 and 2013-2 transactions. Credit Suisse created and developed that specifically for triple-net leases on CRE properties.

The SolarCity deal, meanwhile, is backed by revenues generated by the company’s photovoltaic solar systems and contractual host customer payments across 14 states.

Where other companies spent four years working on deals only to fail, SolarCity’s issue, which priced at 4.8%, provided a template for cheaper funding for solar panel companies that often funded in other formats at double the cost.

Crowning achievement

Credit Suisse’s crowning achievement in 2013 was the US$500m Structured Agency Credit Risk (STACR 2013-DN1), the first-ever GSE credit risk transfer deal, completed in July for Freddie Mac. Adhering to the Federal Housing Finance Agency’s directive to promote GSE risk-sharing, the deal was a smashing success. It was increased by US$100m and attracted 50 different private investors. Fannie Mae followed with its own version (CAS 2013-C01, which Credit Suisse joint-led too), based on the STACR structure, and Freddie issued a second deal.

Both GSEs will be programmatic issuers next year, and GSE risk-transfer bonds are expected to become liquid products with scalability and broad appeal.

Notably, Credit Suisse took risks in the structuring process, sticking its neck out by urging that the deal adopt a sequential structure rather than pro-rata – even though others disagreed. The choice, it turns out, gave risk-averse investors an option to partake in the deal so they could grab a piece of a product with spread, but not a lot of credit risk.

“CS was involved very early on, and knew the market very well. They understood our objectives and were very insightful,” said Kevin Palmer, vice-president of costing and portfolio management at Freddie Mac.

Credit Suisse has also driven CRE structuring technology. It was sole structuring agent and bookrunner on RAIT 2013-FL1, the first CRE CLO to include non-multifamily properties.

Credit Suisse is a leader in arranging agency CMBS too, including Ginnie Mae project loans, Freddie Mac multifamily K-Cert deals, and Fannie Mae Guaranteed Multifamily Structures transactions.

Leading CLOs

The bank has stayed consistent in CLOs, completing more than US$3.7bn of transactions in the US, and around €1bn in European, including the region’s first post-crisis deal – the first so-called CLO 2.0 in Europe.

It started work on Cairn CLO III as early as spring 2012, pushing valiantly against rating agencies and asset sourcing to get the landmark deal done in February 2013. And it turned the first-mover advantage into more mandates, pricing deals for Ares and Avoca.

“It is remarkable how the market has come back,” said Michael Malek of the CLO team in London.“We’re proud of how we worked with the agencies and developed the investor base.”

It wasn’t just in CLOs, though, where the bank has strengthened in Europe, as its roster of deals in the region demonstrates. In 2012 it had just a handful of Dutch and UK RMBS, and Swiss deals to its name. But it has added to that through “a combination of growth in secondary trading, client interaction and primary distribution too”, according to Matthew Gahr, director in the securitised products group in London.

In the awards period, it printed three deals in the nascent Swiss ABS market (sole arranger on GE Money’s auto ABS, its own credit card ABS and joint lead on the first international Swiss franc deal – for BMW), was joint bookrunner on a Norwegian auto deal (Santander Consumer Bank), joint books on a UK master trust (Santander UK) and a Dutch RMBS (for NIBC) and joint books on a German equipment lease ABS (for Societe Generale subsidiary GEFA).

Though never one of the biggest flow houses, being one of the few banks willing to write structured finance swaps in a difficult market has helped it to win various roles. The bank’s strong non-conforming franchise has also been on show, with mandates from the hedge fund community. It was sole arranger on a deal from the long-running Alba shelf for Pamplona Capital Management in June, for example, and at the end of the awards period it was marketing a deal for Precise, backed by Elliott Management, again, sole-arranged.

The bank has also launched a rare public synthetic securitisation, the partially-funded SFr5bn Clock Finance 2013-1 SME deal. And it offers clients solutions through bespoke formats too. One large UK-based manager highlighted Credit Suisse as a dealer that has been consistently active in showing private market trades.

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